Don't get stung by your inventory: Advice on inventories deposits and contracts you can't afford to miss

As more and more people struggle to sell their homes and decide to rent their properties out instead, confusion on official procedures such as creating inventories, drawing up contracts and taking deposits is becoming a growing issue, for an increasing number of people. Whilst it is absolutely imperative that you have a formal agreement in place; even if you are letting your property to someone you know socially, it is also important to have these other formal documents and procedures in place too.

Without these crucial moves in place, a host of issues may arise. Therefore it is essential to be aware of the correct procedures to follow when becoming a Landlord to ensure everything goes smoothly.

Do you need a Landlord Inventory form to keep track of all the fittings within a property? What happens if you have a tenant that has destroyed your furniture? What rights do you have if you want to withhold part of the deposit due to wear and tear?

We were joined by Eddie Hooker from Total Landlord Insurance and my|deposits and Nick Lyons co-founder and Managing Director of No Letting Go, to answer these and other Landlord queries, when it comes to inventories, contracts and deposits. Watch the on demand version of the show now to find out more.

JC: Hello, I'm Jayne Constantinis and welcome to our live show about inventories, contracts and deposits and how you, as the landlord, can protect yourself and not get stung.

Well I'm joined today by Eddie Hooker from Total Landlord Insurance and Nick Lyons of No Letting Go. Welcome gentlemen to both of you.

EH: Hello.

NL: Hello.

JC: Coming up on the show today, we get down to details on inventories, contracts and deposits. We will hear an expert's top tips on advertising and marketing your property and of course, we'll be taking your questions throughout, so do get asking. If you've got any questions for Eddie or Nick, then use the box on your screen. If you're tweeting while watching the show, then please use the hash tag, #letyourpropertytv and we'll try and give you a mention.

So let's get down to the details. Help us to understand what the official procedures are that might help landlords avoid disputes further down the line?

EH: The tenancy agreement has got to be the main starting point for all lets. I'm not just talking about downloading a standard tenancy agreement from the Internet, I'm talking about putting a contract in with your tenant that's specific to that let and how you want that property let. So if you don't want smokers for example in the property, then you need to put that in the tenancy agreement. The obligations the tenant has to follow whilst they're living in the property.

NL: Yeah no, I totally agree. I think one of the things we always say in our business is that the outcome of a tenancy, whatever it is, all the way from the start all the way to the end, is determined at the very beginning. So it's all about the paperwork essentially. As Eddie rightly pointed out, the tenancy agreement is the starting point of everything you do and that determines the whole, if you like, the rules, the regulations and everything but the relationship between the two parties is all formed as a result of this key document.

JC: It's important to keep that all very formal. I remember last time Eddie we talked about the nature of the relationship between the landlord and the tenant and how informal and friendly it should be. Are these people your friends or are they your clients or whatever?

EH: Well they are your clients. They can be your friends of course, but I would say in any relationship if both parties know what their obligations - what they're expected to do, then that always makes for a much better let relationship going throughout the property. Especially at the end, so if something does go wrong, you can always refer back to the document. But go through it with them, don't just pass them a piece of paper and say off you go, sign that, because that actually, in some ways, can be worse than not actually issuing one in the first place.

NL: Absolutely. Of course, this concept of friend, I think, is wonderful. Because we all - as a landlord we all want to be friends with our tenants. We want this wonderful relationship that's going to sort of extend for years on end and everything runs smoothly. Of course, that's great but the reality of letting property is that things go wrong. Tenants lose jobs, they can't pay their rent. Accidents happen. Landlord's criteria and their position changes. So there's lots of strains and stresses that happen throughout their tenancy that can cause problems. It's that time - which happens more often than you'd think - that becomes critical when it comes to the paperwork.

JC: In fact Eddie you've done some research recently haven't you, which has illustrated the kinds of disputes that landlords and tenants can get themselves into. Tell us a bit more about that?

EH: Well we surveyed the Total Landlord Insurance client bank, a mixture of tenants and landlords and unsurprisingly more than half of those relationships have an issue at the end. Not necessarily formal but they are issues to be dealt with. The most common issue is cleaning. Is the cleanliness of the property. What was it like when the tenant moved in and what was the property - what was the expectation of the landlord when the tenant moved out. Again, the second one was gardening, where gardens are not mowed, are left overgrown and the tenant says well that's how it was when I moved in. So again, we're talking about documents, inventories, check-ins, check-outs, things that you do in your company.

NL: Yeah, absolutely. I think throughout the whole of my business nationally, cleanliness comes up over and over again. The documentation that's involved to ensure that this is managed is absolutely critical because what's clean to me is clean to Eddie, is clean to yourself, it varies so much. We all have different expectations. Also landlords - there are landlords who treat letting property as a business and landlords who are accidental landlords. If you've lived in a house and then suddenly you're no longer living in it, your expectations are very different from those of a landlord that has 20 or 30 properties. So it's critical. It is critical.

JC: Let's take a question that's come in. It's very pertinent to now we're talking about inventories. This is from John, who says I use an agent to find a tenant and then I manage the property myself. I use a professional inventory company to draw up an inventory at the start of the tenancy and the same company carries out a closing inventory.

Currently he has to pay these costs. His question is, could he have a clause in future tenancy agreements which say that the tenant has to pay for the closing inventory and is this clause likely to put tenants off wanting the property? I want you to answer that but I also just want to - I know in the research as well it came out Eddie that - what is it, 65 per cent of people do their own inventories. John here is using a professional company, which is the right approach?

EH: Well from an inventory taking point of view, there is no right or wrong. What we would always say is have an inventory and make sure that it's clear and concise and lists everything down. Ultimately, a professional third party inventory taker is always better than doing it yourself or certainly than not doing one at all. So yeah, I think that's a good point. But it's the expectation of that inventory as well. If you've got a family with kids in there, then of course you're going to get scratches and wear and tear more than you would if you just had a professional let. Would you not agree?

NL: Yeah, no…

JC: Would the inventory cover things like the state of cleanliness? I mean should you take photographs of the whole place?

NL: Absolutely. An inventory and a schedule of condition - we use the word inventory generally but really it's about the condition. What we're doing is we're listing everything in the property - and this is not furnished properties. Everyone has this misconception that it's just furnished properties. Actually we're looking at colours of walls, we're looking at quality of carpets.

We're looking at the gardens, as Eddie mentioned earlier on, looking at everything. Because when you leave that property you want to make sure that if mirrors are cracked or windows are cracked or carpets are stained, walls are heavily scuffed or the doors been banged against the wall and there's a hole in it, the toilet seat's broken - all these things happen on a fairly regular basis. It's about managing the - who's going to pay for it. Some of it's fair wear and tear, some if it's related to a tenant liability and some of it's a maintenance issue.

These things are quite important. External inventory companies of course have got the experience of doing it. They have thousands of these sorts of things and they understand and the experience is built up over time.

JC: So what about John's question, can he get the tenant to pay for the professional inventory company fees?

NL: The simple answer is yes. You can - it doesn't matter who pays for any of the fees, whether it's the inventory check-in or check-out. Typically the landlord will pay the inventory at the very beginning. Often the tenant - and this varies around the market - but often the tenant will pay for the check-in via the admin fees. A letting agent, for example - landlords don't often take an admin fee. But when it comes to the check-out you can build a clause into the tenancy agreement - which goes back to what we were saying about the importance of the tenancy agreement - you can build a clause in to say that you're going to be deducting this from the check-out. As long as the tenant is aware of that from the very beginning, you don't suddenly throw it at them at the end, and they sign to agree that, then…

EH: But it protects the tenant as well. So it's not just about the landlord…

NL: Absolutely.

EH: …the tenant's getting security at the end of the tenancy that if there is an issue they actually have a document to say no, the property wasn't in that state when I let it. With disputes it's all about evidence. So it's who said what, where and when. We always say that the disputes start right at the beginning of the tenancy, not at the end. If you can set the expectation, set the standards, set the guidelines at the beginning, what the inventory and the check-out documents will do is give that evidence.

NL: Yeah and you're right. It is about the tenant and the landlord having this sort of balance. We have to put it in to protect both parties. We're sitting in the middle ensuring everything runs smoothly. It's in the tenant's interest to make sure it's all in line. That's why a tenant can pay for an inventory check-in and check-out. If the landlord chooses not to it's completely okay that a tenant pays for it.

JC: Okay. Let's move on to tenancy deposits. How, in an idea world should that process run?

EH: Well, deposits are very important from a landlord point of view. It's an amount of money that gives some form of security that the tenant - against the fact that the tenant may not operate the tenancy agreement correctly. It's generally between one month or one-and-a-half month's rent.

The landlord has got two choices, they can either hold onto that deposit and then insure it via a scheme such as My Deposits or they can actually hand that deposit over to a third party tenancy deposit scheme to look after until the end of the tenancy. So yes, the majority of landlords out there are taking deposits and the majority of landlords are protecting those deposits in tenancy deposit schemes.

JC: Just a quick question from - I think you've just answered it - Jonathan Robinson, is two months' rent too much to ask for as a deposit? You said one, one-and-a-half.

EH: Well I would say don't price yourself out of the market, especially at the higher end rental properties. Anything over two months could be getting into a bit of an issue as to whether it is actually a deposit or whether it's a - what's called in the market as a premium. But I would say generally the market is settling around about one to one-and-a-half months.

NL: Yeah. We found in - certainly the work that we've done within our own market, is that six to eight weeks is becoming quite normal because there's been an increase in arrears, people not paying their last month…

EH: Yeah, that's a good point actually.

NL: …and nothing left for the damages. So people have tried to address this and they've increased the deposit. So I think many agents have recommended to their clients so that's what they've done.

EH: Rent guarantee insurance policies actually say you must take at least one month deposit. So that might be driving the increase.

NL: Yeah, the increase.

EH: But in London where rents are typically £2000, £2500, to ask a tenant to find £5000 up front - just understand your marketplace I think. If you can get away with asking for it, ask for it, but don't price yourself out.

JC: That phrase, understand the marketplace, segues beautifully into our Ask the Experts feature today. We grabbed some time with an expert at the Property Investor Show recently for some valuable advice on how to advertise and market your properties. Here's what we found out.

[Excerpt plays 12:47]

RP: My first tip for a landlord letting their property is to establish whether there is a demand for tenants in that area. Another tip would be the standard of the property that you're offering to tenants. I.e. if you're putting them into a house that you haven't spent any money on or you've neglected then your tenants are going to treat it in the same way. Whereas if you've put in new carpet or you've laminated the floor, you've made it nice and clean and tidy, you're much more likely to get it back in that condition.

Things to be aware of if you're going to go to advertise it yourself is, obviously you're saving yourself the cost. Whereas if you're going over to an agent he will charge you a finder's fee. But one thing that people don't sometimes appreciate is that when they're actually getting the tenant themselves are they doing the same credit checks, the same references? Are they securing their deposit on the deposit scheme? So they can create themselves a bigger problem if they're not aware of the legislation that is changing all the time now. Whereas obviously if you go through an agent he will be aware of those things. So I actually think it gives you peace of mind if you go with an agent.

If they're wanting to do an HMO, which is the buzzword at the show today - I mean I did a seminar on that earlier, which stands for House in Multiple Occupation, you need to establish that again there's quite a number of single people, for example, who want to let rooms. An easy way to establish that is just a simple little newsagent's ad where you say £75 for a room and see the response that you get. If you've got four rooms then you're generating over £1000 a month, which could be double the rent that you'd get from a family let.

So obviously it's quite an attractive return for an investor to consider that option. The pitfalls are that they do need a lot more managing. You do need to be aware of the area that you're going to be offering this facility because some neighbours don't like the fact that four or five people are moving into the house next door. But the benefit is obviously the additional rent and you get less voids. The reason for that is it's very unlikely that all four of your rooms would be empty, whereas if you've got a family let of course, once they move out you have a void until you replace them. So HMOs, you're always keeping income coming into the property. We've actually found that, again, if you put things in like broadband, offer Sky TV, you laminate the floor, that you can actually get up to £100 a week per room. Again, there's a lot of people now who are getting up to 30 or even older who are still living with their mum and dad because they can't get out and get the deposits to buy a house. So that market is just growing all the time.

JC: That was interesting, wasn't it, because he was talking about putting things like broadband and Sky TV and so on, presumably the more added extras you have like that, the more important the inventory is?

NL: Well, of course, absolutely. I mean, the inventory is important anyway, but certainly the more you put in, the more there is to break, the more expensive stuff that you put into your property, you've got to recover this cost. I mean, satellite dish is a classic one because we often see the situation where, when we're doing check out, that tenants have put satellite dishes up without any permission. It happens quite a lot.

So, suddenly on the back of the house is this satellite dish and we've picked up before - a funny story - where we had a tenant that had drilled through the centre of the bathroom window, run a cable over the shower, straight through the door and into the living room. Of course, let alone the fact that the landlord...

JC: The health and safety...

NL: ...went absolutely ballistic over it, as you can imagine, but the health and safety, as you say, was just horrendous. We came in and we were just like, wow. I mean, I was just astounded. But people do this stuff, they don't think sometimes and of course, in fact, I believe that went to a deposit scheme and I believe that they had to replace the whole window. So the tenant had to get recovery from the window.

But of course these sort of things, if they don't get picked up, there's an issue. But I agree with what you say, absolutely.

JC: How much does a professional inventory cost?

NL: Well they vary around the country, because it's a time-related business, but generally speaking you're looking for sort of one-bed properties, £65, £70 for a report. So it's not - it's not particularly expensive...

EH: good investment, good investment.

NL: It's really not that expensive. I think the critical thing to remember is that it's an inventory management process. So just having an inventory done and then no one ever see it is pointless. The critical element is have the inventory done, have a good detailed inventory, that reduces the ambiguity at the end. Then, the process of checking, which is where you take the inventory and you get the tenant to agree to it. They're agreeing to it, make any adjustments and clarification issues, agree all the meters have taken, that sort of thing. That's agreed and then that forms part of the tenancy agreement and that becomes critical.

Then when it comes to the end, it comes to the check out. Now, particularly if it's done independently, you've got a situation if there's ever been a fall out between the landlord and the tenant or the agent and the tenant, whatever the case is, now you've got an independent party that goes in, takes the original documentation that was signed and agreed by the tenant and says, Mr Tenant, here, you sign this, we will now determine change. That's what we're looking for, change. We're not there to determine who pays what, that's not our role, our role is to provide the landlord or the agent a document that says, the wall was white and now it's blue. This was in good condition and now it's...

JC: Now it's been damaged, yep.

NL: It was clean - and that's a good way...

JC: It's all about transparency, isn't it, and clarity.

NL: It is, yeah, absolutely.

JC: More on that to come, I'm sure. But now it's time to explore more property tweets of the week. Eddie and Nick will be answering more of your questions live. It's not too late, even, to get a question in. Use the box on the screen or tweet using the hash tag, letyourpropertytv. See you in just a moment.

So welcome to our property tweets of the week feature where we'll be discussing the hot topics in the world of property according to twitter. The topic that we're covering today is Olympic lets. So we've selected two tweets that are representative of the conversations that are going on out there. The first one is from Lettingweb.com and it says, landlords that have attempted to take advantage of the Olympics may have a nasty surprise in store. The second one, which is from [logic4training], landlords, if you're renting your property out for the Olympics, make sure you know the facts.

That all sounds rather scary, what's going on? What are they referring to?

NL: Okay, I think the critical thing with the Olympics is that over the last year or so there's been this big buzz about everyone's going to make a fortune and the hype and I think the reality is slightly different. We've certainly seen an increase but it's not that easy to - if you've got a sitting tenant to say to the tenant, well the Olympics are coming up, can you go on holiday for a couple of weeks because I want to rent your property out, it's not that straightforward.

So there's a whole legal issue around that and of course the other thing is if you're an owner-occupier, i.e. you own your own house and you want to get away from the Olympics for a few weeks and you want to make some money out of it, then of course you might say, okay I want to rent it out. But of course renting a property involves, I think, by last count over 60 pieces of legislation, just to move somebody in. It's quite incredible. This is why lettings agents are used so much and of course it's not something you can just say, okay, I've found somebody, move in. Because what if it goes wrong? What...

EH: And again, if it is your own property and you're letting it out, if you're living there, your insurance policy could be invalid if you're putting tenants in there. There's other issues that a lot of landlords have been looking to hike up the rents to unrealistic levels and from the discussions we're having in the marketplace, there seems to be less of a take up in Olympic lets than was expected. I think that's causing a problem for some landlords where they're going to end up with void periods and they're not actually going to get any rent at all.

NL: No, I mean we've seen - I think the demand that we've seen is - with some of our clients who get involved in the corporate lets. So some of the big sponsors that come to the Olympics, they've taken, say, 20 flats and then they're renting them out. Well of course, the thing to remember from a landlord or if you like a part-time landlord in this case, is the fact that you've now got to move all your stuff out - you can't have any personal items sitting there. You've got to move the whole lot out for two weeks and then move it all back in again. I mean, the upheaval, we all know what we've got in our lofts as [Steve]'s just - what we've got in our cupboard.

JC: It's not the goose laying the golden egg that a lot of people thought.

NL: It's not.

JC: I confess, I even considered renting out my house.

NL: I think everyone did that, I think we all did.

JC: We all did.

NL: We all did, I think.

JC: And I live in Edinburgh - no, no, no.

[Laughter]

EH: I mean, some people obviously are making some money at least, but I think the message we're trying to portray, it's not as simple as just saying, I'm moving out, move in, or trying to get rid of an existing tenant that you may have had a good relationship with, to try and make a few extra bucks.

JC: Probably not worth it.

NL: I think - and my advice would by, if you were to do it - and we're almost on top of it now - but if you were to do it, then use an agent.

EH: Yes.

JC: So let's move on now, let's broaden out to some of the other - we've got lots of questions that have come in, we'll try and get through as many as we can. Anthony says, if a tenant must pay for the check out, then surely the tenant can choose the checkout provider? But hasn't it got to be the same as the check in provider?

NL: Do you know, that's a really good question. It's never really come up. Typically speaking, you want the company that did the originally inventory to do the check out. But of course, if - for example, if the - it depends who's paying for it, at the end of the day. You can put whoever you like in. We often, as a company, get involved in check outs where the inventory was done by another company or by the landlord and they ask us to go in because, for whatever reason, they want to change. So there's no - it doesn't make any different, you're right, there is - you don't have to use the same company [unclear] the same thing.

JC: So, in essence, the answer's yes.

NL: Absolutely, absolutely.

JC: Let's just quickly answer [Meera]'s very specific, back to the Olympics just for a second. Can I terminate my tenant that is in my property currently so that I can bring in a tenant paying more for the Olympics?

EH: Not if you've got a fixed term agreement, you're going to find that very, very difficult. You would have to literally come to an agreement with the existing tenant to finish the existing tenancy agreement. And remember, Olympic lets are generally going to be two, three, four weeks maximum, you're going to find it very, very difficult - I don't think you actually can issue a tenancy agreement for that amount of time. So, no, I would say stick away from that.

JC: I think probably the answer here is no.

NL: Yeah, or see your lawyer.

EH: Or see your lawyer.

JC: Which may be more expensive than the money you're going to make on the Olympics.

NL: More expensive than they'd probably make in the first place.

JC: In fact, [Susannah], on terms of contracts, Susannah says, my tenants are on a 12 month contract, I know some landlords opt for a six month contract, what are the benefits of this? What are the benefits of each?

NL: Well, I mean, certainly - as a landlords myself, which I am, the - we almost always opt for six month tenancies and the reason for that is because the tenancy agreement allows us for either an extension if we're happy with the tenant. Bearing in mind, you might be unhappy with the tenant, they could be causing noise, all kinds of things. If you're happy with the tenant then extend it on.

What - one of the problems with a long tenancy, whilst it gives you the peace of mind that you've got somebody in for 12 months, but if that tenant stops paying at three or four months, then you've got to evict the person and you either - there are various ways to evict but two main ways. One of them means you have to wait until the end of the tenancy before you can serve a notice. If you've got a 12 month tenancy, you've got to go without the money.

JC: So it's a safeguard.

NL: It's a safeguard, and I would - my advice would be, is if you're going to go for a 12 month tenancy, do six months first, make sure you're happy with your tenant...

EH: Caveat very quickly on that, a lot of agents charge to renew the tenancy, so if you've got a short period, six months, and you're using a letting agent, you may end up having fees to pay every six months.

JC: Oh, that's interesting.

EH: So just be...

JC: Balance the two.

NL: Some do, some don't - absolutely, some don't.

JC: So it's a question worth asking, then, when you're choosing one, isn't it. Sadly we've only got time for one more question, so we're going to deal with this from Ian who says, my landlord didn't do an inventory, does that mean he cannot hold any of my deposit back at the end of the tenancy?

NL: Well, no, what he can't do is if - for example, if the landlord comes or the agent comes in and finds a number of issues, disputes if you like, and then if the tenant raise - says I disagree with that, I'm not happy with that, it's down to the landlord to prove that this was caused, because the tenant will say, well it was like that when I moved in. The landlord - if the landlord can't prove it and if there's no inventory, particularly if it's not signed either or there's no checking documentation at all...

EH: Chances are, he'll lose that dispute.

NL: ...he'll lose the dispute because you can't prove it. It's about the evidence. So, in that particular question, the tenant's in a strong position, if the landlord hasn't done an inventory.

JC: Okay, well that's a good one to end on, isn't it, just how important the inventory is for both sides of the relationship.

NL: Absolutely.

JC: Thank you very much. We're out of time I'm afraid, so thanks to Eddie and Nick for joining us.

If you want to find out more about Total Landlord Insurance then go to totallandlordinsurance.co.uk and also check out the Total Landlord Facebook page. If you like the page, you might even win a year's subscription to Property Investor News. See you next time, bye bye.